Microsoft doesn’t double up on price

Intel and AMD didn’t want to debut their dual-core server processors later this year with this sales pitch: “You’ll get 20 to 50 percent more performance than with a single-core chip in the same space and without using more power. Of course, all of your software license costs will double.” They won’t have to, thanks to Microsoft’s insatiable appetite for market share.

In October Microsoft gave the chip makers a huge boost, by announcing that its processor licensing model will charge customers per processor, not per core. In other words, it will not cost customers any more to run Microsoft server software on the new dual-core processors than on single-core processors. Analysts say that the Microsoft announcement will certainly encourage IT managers to look at dual-core chips, which integrate two processors into one package. Now all the chip makers have to do is deliver the substantial performance and power benefits they have promised with the technology (so far without details).

“With Microsoft out of the way, the biggest software impediment to adoption has been taken care of,” says Dean McCarron, founder of analyst firm Mercury Research. Margaret Lewis, commercial software strategist at AMD, agrees: “It takes away a sales obstacle. We see that as good news.”

Microsoft could have decided to charge per core, but the company is so hungry for market share in a variety of server software segments that it is willing to trade away revenue to get it. “At the end of the day, we’re going to get more share of all those databases, operating systems and server environments than the competition,” Microsoft CFO John Connors told financial analysts shortly after the announcement. It didn’t hurt that Microsoft rivals Sun Microsystems and Linux vendors Red Hat and Novell had a month earlier announced similarly favourable pricing for dual-core based servers.

Microsoft, however, is the leading vendor of server operating systems, and its announcement will leave many other vendors with little choice but to follow suit, says Al Gillen, research director at analyst firm IDC. That will further suppress the costs of adopting dual-core technology. “It put a de facto standard in place for ISVs, which will be hard-pressed to take a different tack,” Gillen says. “Any vendors who goes another direction on this will have to have a good justification and will have to explain it to customers.”

One such influential vendor, Oracle, has sought to do just that. Shortly after the Microsoft announcement, Oracle posted on its Web site a defiant Q&A with its licensing vice president, Jacqueline Woods, who implicitly chided AMD and Intel. “Customers pay by the number of processors they use, whether they are delivered on one chip or two,” she states. “Hardware vendors aren’t reducing their costs as they offer dual-core chips. Instead they are pushing customers to push software vendors to cut software costs.” Oracle refused to budge, insisting that its licensing policy would be per core, not per socket.

Indeed, chip makers will likely charge higher prices for dual-core chips than for single-core processors. “Our pricing is based on performance delivered,” says Barry Crume, director of server workstation business at AMD. AMD prices processors based on their performance in running a mix of applications. Early this spring, the company plans to announce what the performance gains will be, he says.

Don’t expect anything too stellar in 2005, says analyst Jim McGregor of In-Stat, a division of EB’s parent company. “Its performance is not going to be double. Hopefully it will be upwards of 50 percent, but nobody really knows,” he says. One reason performance doesn’t double with two cores is that, to conserve power and limit heat, the cores are not run at their maximum clock speed. Another reason for the limitation of performance in the first versions of the chips is that neither AMD nor Intel will likely have fully optimised how memory is apportioned to each processor, McCarron says.

Intel expects that dual core—and then multicore—will become the standard over the next two years, according to Intel spokesman Bill Kircos, who estimates that by the end of 2006, dual-core processors will represent 70 percent of its Pentium shipments, 85 percent of its server chips and 70 percent of its mobile chips.

In the near term, IT managers who still value speed and performance above saving power and space will likely be better off buying separate single-core processors, McCarron says. For this reason, no one expects dual-core sales to take off strongly in 2005, even with Microsoft’s favorable software licensing terms.

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